CJEU ruled on 8 December 2022 (case C-247/21) that a transaction is taxable as an intra-Community triangular transaction (ITT) only if the intermediary’s invoice contains the words “reverse charge”.
An ITT is in essence a VAT simplification mechanism for triangular transactions involving three traders, each registered in a different Member State. An ITT allows the intermediate party in such a transaction to avoid registering for VAT. The application of the mechanism is subject to the substantive conditions laid down in Article 141 of the VAT Directive and the formal conditions, including those on invoicing, laid down in Article 197 of the VAT Directive (the invoice issued by the taxable person not established in the Member State of the person to whom the goods are supplied is drawn up in accordance with Sections 3 to 5 of Chapter 3). These regulations have recently come to the attention of the Court of Justice of the European Union, which construed them in case C-247/21 Luxury Trust Automobil, judgment dated 8 December 2022.
The court held that a transaction is taxable as an intra-Community triangular transaction only if the intermediary acquiring the goods has issued an invoice that contains the words “reverse charge” (as required by Article 226(11a) of the VAT Directive).
What is more, CJEU said that the failure to add such words on an invoice may not be subsequently corrected because the tax liability must be transferred to the recipient of the supply on issuance of the required invoice for the first time, which cannot have retroactive effect.
As such, CJEU’s ruling in Luxury Trust Automobil marks a departure from the court’s prior case law on the substance-over-form principle applicable to the right of deduction and to VAT exemption on intra-Community supplies. In accordance with that principle, compliance with substantive requirements comes first even if certain formal requirements, e.g. concerning invoice content, are not satisfied. According to Luxury Trust Automobil, formal conditions must be complied with in order to apply the ITT simplification mechanism in VAT.
The case signals paramount importance of invoice content in commercial transactions. Given the restrictive approach in Luxury Trust Automobil, businesses engaging in intra-Community triangular transactions should not depreciate the formal transaction requirements as even a small invoice mistake may have negative tax consequences. Due care and diligence is needed particularly in chain transactions.
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